In early September 1939, Sweden responded diplomatically, economically and militarily to the conflict that would become the Second World War. Between 1 and 3 September the country's neutrality was again declared, shipping lanes and harbours were closed to foreign warships, unnecessary journeys prohibited to save petrol and 70,000 reservists were called up. The Government made it clear that it wished to maintain trade as far as possible with countries which respected Sweden's neutrality and integrity. Within the two-party Coalition Government, in power since 1936, an air of cynicism and resigned acceptance of the situation permeated the politicians. West-man, the Justice Minister wrote: ‘A world war every twenty-five years — it's an unpleasant and expensive educational method.’ Per Albin was even more bitter, complaining that everything he had tried to accomplish, his Folkhem vision, would soon be wasted on ‘military operations, artillery, cruisers and planes.’ Two major issues were now on the Government's agenda: regularising the trade position with the belligerents and safeguarding the Ålands.

Trade Agreements, December 1939–January 1940

The priority for trade was to conclude an agreement with Britain as a precursor to negotiating with Germany whose aims were expected to include maintenance of iron ore shipments. A British aide-memoire to Sweden on 7 September, clearly well-prepared in advance, envisaged an agreement based on a restriction of re-exports of western goods to Germany and a limitation on trade with Germany, particularly iron ore, to pre-war levels.